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June, 2013, Page 136
Development in Arizona is on the rebound. Who’s going to keep the water flowing? and at what cost?
As of this minute, The price of a barrel of oil is $93.49. It’s listed on the new york mercantile exchange. It’s reported in the news. Everybody agrees on it.
As of this minute, what’s the price of a unit of water? Well, if you’re a member of certain Native American communities in Arizona, it might be $25. If you’re the Palo Verde nuclear plant near Phoenix, it’s about $300. If you’re a water development company with sights on Prescott Valley, it could approach $25,000. Confused? Welcome to the world of water rights deals.
We tend to think of water as a public resource, free from the vagaries of market forces. More than 90 percent of Americans get their water from publicly controlled systems, and many people feel that’s how it should be. “Water is essential. I don’t think we should entrust it to water brokers,” says Sandy Bahr, director of the Sierra Club’s Grand Canyon chapter.
But throughout the Southwest, it’s become increasingly common for water to be bought and sold at auctions in multi-million-dollar deals. Market consultants predict we’ll see even more water privatization in the future. National water development and investment companies like Aqua Capital Management, Water Asset Management, and Vidler Water Company are quietly capitalizing on liquid cash. Some flip water resources like real estate sharks; some broker deals like pawn shops; some do the heavy work of sleuthing out water sources, buying them from government entities, building infrastructure, and selling the H20 to developments.
Like crude oil, water becomes more valuable as it becomes scarcer. And it is becoming scarcer. According to a recent study, the Southwest’s population boom, coupled with persistent drought and climate change, will lead to a water deficiency on the Colorado River of more than 1 trillion gallons annually by 2060. What will decreasing water coupled with increasing privatization mean for the average Arizonan’s water bill? How will voters and ratepayers react to corporate ownership of water? Should governments even allow a life-sustaining resource to be vulnerable to price gouging? Whatever the answers, one thing is certain: The real cost of water is about to hit home.
San Diego-based water investment company Summit Global Management takes its motto from Benjamin Franklin: “When the well’s dry, we know the worth of water.” Summit consultant Steve Maxwell has a saying, too: “If [water] has no value, we treat it like it has no value.” University of Arizona professor Robert Glennon agrees. In his 2010 book Unquenchable: America’s Water Crisis and What To Do About It, he says Americans are encouraged to waste millions of gallons of water because of low prices. The average American household gets four gallons of water for a penny. Glennon – and many others – say we need to start paying what water is really worth. But how much is that?
Water is measured in acre-feet (AF): one acre across, one foot deep. It’s 325,851 gallons – the average amount of water used every year by a family of five. Phoenix downs about 100 billion gallons, or 306,000 AF, every year. In Arizona, the price for municipal water fluctuates, but $145 per AF is not unusual, according to David V. Modeer, general manager of the Central Arizona Project (CAP), which provides about 40 percent of the state’s water.
Roughly the amount of water a family of five uses every year
But water can fetch pails more money. In 2007, Prescott Valley auctioned off 2,724 AF of its recycled water for $67 million. That’s $24,650 per AF. The buyer was Water Asset Management, a New York City investor in water companies. A condition of sale: Keep that water in town for re-sale to future developers, says town manager Larry Tarkowski. Omaha-based Aqua Capital Management, which has handled more than 500 water-rights transactions in the U.S., arranged the auction and guaranteed the town a buyer. If the water didn’t sell at auction, Aqua would buy it for $53 million.
But another water company is taking the reins in Arizona.
For a glimpse into the possible future of our state’s water, take I-10 over the Maricopa County line to La Paz. There, on 460 acres, sprawl the green rectangles of the Vidler Recharge Storage Facility. The site can store up to 1 million AF. Now it’s about a quarter full. The vault belongs to the Vidler Water Company, a La Jolla, California-based corporation that’s been buying billions of gallons from CAP for about 15 years. Nearby, the company owns nearly 9,800 more AF. And at five sites in the Phoenix area, Vidler stores another 157,000 AF. All told, Vidler paid a relatively low $78 per AF (about $33.4 million) for a total Arizona water pool of 427,351 AF, according to CAP. Vidler – which also has projects in Nevada, Colorado, New Mexico, and Idaho – is a subsidiary of La Jolla-based Pico Holdings, one of whose subsidiaries was once the largest private holder of real estate in Nevada, with 1.2 million acres. In 2012, Pico pegged its total real estate and water ownings at $342.3 million. Most of Vidler’s water in Arizona is now waiting for buyers – and almost certainly accumulating value while it waits. Assume two big ifs: that Vidler could sell its Arizona water today, and that $145 per AF is a reasonable yardstick. If so, Vidler’s Arizona water would be worth about $61 million.
Depending on future demand, though, it could be worth more. Water’s value is fluid. It depends on where the water is, how big the supply, how urgent the demand, and lots more – including who owns it. The line between public and private ownership can be fluid, too. Colorado River water starts out as public property, but before it reaches faucets, it winds through a flow-chart of bureaucratic and political channels – managed by soft-spoken people who drop legalisms like “usufruct” and “fungible” in polite company – as well as owners including private utilities.
Vidler is not a utility. It buys and sells water for profit – but company president and COO Dorothy Timian-Palmer is quick to correct a reporter who asks about brokerage and speculation. She distances her company from firms like Aqua Capital or Summit Global. “We’re not just someone who goes in and buys water resources that are already developed, holds them, and then flips them,” she says. “We don’t do that.” So what does Vidler do? “We develop water resources, we employ people.” Vidler’s customers, she says, have a practical, concrete need for water. “We have a project before we go into an area.”
How Vidler acquired Arizona water stems from the complex way water is handled in the Southwest. The Southwestern states have been fighting over water since the 1920s, when the seven Colorado River Basin states and Mexico signed the seminal Colorado River Compact. The federal government now referees that fight, via a complex mechanism of regulations, lawsuits, and interstate agreements. By the time the Colorado trickles into Mexico, it’s practically dry.
The U.S. Department of the Interior lets Arizona have 2.8 million AF of Colorado River every year. CAP divvies it up between agricultural, municipal, and other users, delivering it to Pima, Pinal and Maricopa counties via a 336-mile canal. The Arizona Water Bank stores unused water for emergencies in six facilities, most near Phoenix. Modeer says the banked water could see the state through a four-year drought. It isn’t for sale and has never been tapped, says CAP water-control manager Brian Henning. In a drought, CAP’s first priority would be drinking water, he adds.
For years the Bank was full to the brim. As a result, CAP had “excess” water on its hands – about 832,000 AF in 2009. It would be a shame, CAP reasoned, to let the feds liberate Arizona’s unused Colorado dole and give it to California – for free. It’s been known to happen, Modeer says: “California, prior to the development of the CAP [online since 1993], was already using a portion of Arizona’s Colorado River allocation. The amount varied year to year but was in the hundreds of thousands of acre feet.”
To keep the excess water in Arizona, CAP held an annual sale to farmers, municipalities, Native American communities, and – last served – dozens of private companies like Resolution Copper Mining, Rosemont Copper, and Vidler. Now, rising demand for the wet stuff has dried up CAP’s excess supply, Modeer says. But up to 2009, CAP was happy to sell excess to Vidler, Timian-Palmer says. “They didn’t want the water to go to California. So we met a need. And now… CAP doesn’t want us here any more.”
“That is her opinion,” Modeer says. “We do not have a negative view of Vidler or others who are the same type of business. We only require that business transactions are in accordance with Arizona law.”
Sometimes, Vidler’s staff of 15 engineers, geologists, hydrologists, and archeologists explores and discovers new water sources, as they have in Nevada and Colorado. More often it drills for known water supplies and builds the wells, pipelines, tanks, booster pumps, and other hardware needed to move water.
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